Andrew McKellar interview with Patricia Karvelas, ABC RN Breakfast

04 May 2022 |

Event: Andrew McKellar interview with Patricia Karvelas, ABC RN Breakfast.

Speakers: Andrew McKellar, chief executive Australian Chamber of Commerce and Industry; Patricia Karvelas, host ABC RN Breakfast.

Date: 4 May 2022.

Topics: Inflationary pressure on business, interest rates, business loans, supply side constraints facing business.


Patricia Karvelas, host ABC RN Breakfast: The return of interest rate hikes doesn’t just affect mortgage holders, it affects businesses as well. Andrew McKellar is the chief executive of the Australian Chamber of Commerce and Industry and our guest. Andrew, welcome back to Breakfast.

Andrew McKellar, chief executive Australian Chamber of Commerce and Industry: Good morning, Patricia.

Patricia: The economic picture the Reserve Bank paints is mixed. On one hand, inflation is well above its target band, but the Bank also talks about the economy’s resilience. How strong is the economy right now?

Andrew:  Look, I think what they’re saying is correct. I think fundamentally there are strengths there in the economy and we’ve seen that business has really, I think, done well to get through the past two years. We’re in a very tight labour market. Business has bounced back repeatedly from the restrictions during the COVID period. And I think it’s primed to grow. We’ve seen household savings building up as well. So, there is a buffer there, but there are risks that have to be managed. We are facing intense supply side pressures in the labour market, the difficulty of getting labour and skilled labour, in particular, and equally, significant disruption on supply chains. And that’s adding to those pressure points that the Reserve Bank is reacting to at the moment.

Patricia: Households will need to adjust to high repayments and so will businesses. Are they ready for that? Do they have realistically cash put aside to deal with this new reality?

Andrew: To some degree, absolutely. But let’s not forget that about 50 per cent of business loans, particularly small business loans, are funded by home equity, underpinned by mortgages. So we have to be careful here. Interest rates have been at historically low levels. What we are seeing at the moment is the Reserve Bank moving those very short-term interest rates back, starting to move them back to more normal levels. We could see them go up a couple of per cent in the next year or so. What we have to ensure is that the inflationary pressure that’s building in the economy at the moment, that that is headed off. Otherwise, we see much more significant risks further down the track and that’s what’s got to be managed. And I think that’s what the Reserve Bank is really reacting to in this situation.

Patricia: The RBA had previously said rate increases were unlikely until 2024. Has the business community been let down by those forecasts?

Andrew: I think that’s created some difficulty because clearly, that was something that people put some stock in. That was the guidance that the Reserve Bank had provided during the course of the pandemic. But as the Reserve Bank governor yesterday sought to explain, that was based on their analysis at the time. It was based on an analysis that there would be a much more far-reaching impact on the economy from the pandemic. And that it would take longer to recover from that.  Now, in fact, our performance has been better than expected. Growth has held up. The economy has performed better. The labour market is going much more strongly than had been anticipated in that earlier period during the pandemic. And as a result, they now have to adjust their policy expectations. So, if anything, the argument is they may have held off for too long and that’s –

Patricia: Do you think they held off for too long?

Andrew: I think it’s arguable that they could have taken this step a couple of months ago. I think they had to do it now. I think they’ve demonstrated their independence in the process. And the other thing we’ve got to steal ourselves for is that there are going to be inevitably further increases in the months ahead.

Patricia: So when you say people have factored in the 2024 timeline. I’m getting that mail very strongly on the text line here on Radio National Breakfast too, from our listeners. So in that sense, does this erode trust in the RBA as an independent institution? I mean, it gave this guidance, clearly people heard it, and now it’s not the case. What does that say?

Andrew: I think they’ve copped a lot of criticism for it, to be honest. And I think if they look back on their time, would they have expressed their guidance slightly differently? Maybe they would’ve. I think, at the time, they were trying to provide an indication that was based on all the analysis that they had. And I think, ultimately, we’ve got to have confidence in the Reserve Bank, but clearly this is not an easy job. Trying to forecast the economy is a mugs game, but there are pressures out there that have to be balanced.  And it’s not just the role of the Reserve Bank to do that. But as we look at the election context as well, I think there’s an assignment here for both of the major parties to come forward with some pretty clear plans now about how they are going to manage these risks in the economy. Because on the supply side, there are significant risks. We’ve got a very tight labour market. We’ve got to find ways to get more people into the labour force to address those shortages. And equally, we’ve got to see how we are going to build capacity and resilience and strength in our supply chains if we’re going to avoid some of those pressures that are really, pretty intense in the economy at the moment.

Patricia:  Just a final question, we’ve only got a minute left, but the Bank was going to wait for wage data before moving, but said yesterday that that data from business surveys suggests there is already evidence of stronger upward pressure. How much are wages going up at the moment in your estimation?

Andrew: Certainly, we are getting the same indications. So I think the official figures, which show the wage price index at 2.3 per cent, that’s only to the December quarter. I think that’s understated. We are certainly seeing that there is evidence that wages are picking up and particularly, with mobility in the labour market at the moment. So whether people are getting 5 per cent increases, in some cases more than that, we’re certainly seeing evidence that wages growth, market outcomes are higher than the official figures. So I think that’s right.

Patricia: Andrew, thank you.

Andrew: Thank you.

Patricia: Andrew McKellar is the chief executive of the Australian Chamber of Commerce and Industry.

Jack Quail | Media adviser

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